Leon v. J. M. Radford Grocery Co.

• Decision Date: 06 February 1924
• Docket Number: (No. 6718.)
• Citation: 259 S.W. 318
• Parties: LEON et al. v. J. M. RADFORD GROCERY CO.
• Court: Texas Court of Appeals

259 S.W. 318

LEON et al. v. J. M. RADFORD GROCERY CO.

(No. 6718.)

Court of Civil Appeals of Texas. Austin.

February 6, 1924.

Rehearing Denied March 12, 1924.

Appeal from Coleman County Court; S. J. Pieratt, Judge.

Action by the J. M. Radford Grocery Company against I. M. Leon and others. Judgment for plaintiff, and defendants appeal. Affirmed.

Critz & Woodward, of Coleman, for appellants.

Baker & Weatherred, of Coleman, for appellee.

McCLENDON, C. J.

J. M. Radford Grocery Company, referred to herein as the Grocery Company, brought this suit in the county court of Taylor county, on December 28, 1920, against I. M. Leon, to recover a balance of $301, upon open account, and on the same day sued out a writ of garnishment against the Coleman National Bank, referred to herein as the bank, which writ was served on the latter the day following. The bank answered on January 5, 1920, admitting an indebtedness to Leon of $1,526, represented by a bank deposit. On January 4, 1921, Leon replevied the garnished deposit by giving a bond in the sum of $650, with Leon L. Shield and H. M. Jones as sureties, who will be referred to as the sureties, conditioned as provided in R. S. art. 279. On March 21, 1921, upon a plea of privilege filed by Leon, the original suit and garnishment proceeding were transferred to the county court of Coleman county. On April 8, 1923, the grocery company filed an amended petition, in which it sought to recover for the price of one bale of duck of 875¾ yards, sold by it to Leon at 37½ cents per yard, with interest from January 1, 1921. On April 9, 1923, Leon filed an amended answer containing two pleas in bar, the first being a discharge in bankruptcy and the second that the duck was rotten and worthless, although warranted to be sound. The first of these pleas alleged the filing of an involuntary petition in bankruptcy against him in the federal court at San Angelo on February 14, 1922, the filing of his schedules therein, in which the grocery company was listed as a creditor, the filing of an offer of composition of 25 cents on the dollar to his unsecured creditors, its acceptance by a majority in number and amount of his creditors, and approval by the court, due notice to the grocery company of these proceedings, and its refusal to participate therein, deposit of the amount of the composition in the designated depository, and a final dismissal of the proceeding August 10, 1922. By a supplemental petition the grocery company set up the garnishment proceeding, prayed that it be consolidated with the main suit, and asked for judgment, in any event, against the sureties upon the replevy bond. The sureties answered, setting up the same defenses that were contained in Leon's amended answer, above, contending, as regards the bankruptcy, that the discharge of Leon, their principal, operated as a discharge of their liability upon the replevy bond.

The cause was tried to the court without a jury, who filed findings of fact in which the breach of warranty of the duck was sustained to the extent of 27½ cents a yard, and the facts regarding Leon's bankruptcy were found as alleged in his answer. Upon these findings judgment was rendered against Leon for $99.57 ($87.57 of which was the value of the duck at 10 cents a yard, and the balance interest from January 1, 1921, to date of judgment), with legal interest, but decreeing that, by reason of the bankruptcy composition, "no execution shall ever issue hereon against the said I. M. Leon." Judgment was also entered against the sureties, jointly and severally, for the $99.57, with interest and costs (except the costs incurred in Taylor county), including $10 attorney's fee to the bank. Both Leon and the sureties have appealed from this judgment upon a joint supersedeas bond, and have filed joint assignments of error and briefs. These assignments of error, four in number, question the correctness of the trial court's judgment upon grounds which may be summarized as follows:

(1) The confirmation of the composition operated as a discharge of all liability by Leon upon the debt in suit, and therefore it was error to render judgment against him establishing that debt.

(2) The discharge of the debt in suit by the confirmation of the composition operated as a discharge of the garnishment proceeding based thereon and of the liability of the sureties upon the replevy bond.

(3) Judgment against Leon upon the debt in suit was essential to a judgment against the garnishee bank. The condition, therefore, upon which liability upon the bond was contingent never arose, since no judgment could properly be rendered against Leon, and none was or could properly be rendered against the bank.

There is no question but that the debt sued upon was provable in the bankruptcy proceedings, and that it did not fall within any of the classes of debts which section 17 of the Bankruptcy Act (U. S. Comp. St. § 9601) provides shall not be released by the discharge. Confirmation of the composition had the same effect as a discharge. Bankruptcy Act, § 14c (section 9598).

All liens created by judicial proceedings are preserved, and not affected by the bankruptcy or discharge, except when created within four months prior to the filing of the bankruptcy petition, and while the debtor is insolvent. Miller v. Clements, 54 Tex. 351; Elliott v. Booth, 44 Tex. 180, 23 Am. Rep. 593; 7 C. J. p. 192, § 289. Liens created under these excepted circumstances are by section 67f of the Bankruptcy Act (U. S. Comp. St. § 9651) rendered "null and void." The evident purpose of this exception is to prevent preferences through judicial proceedings, and to bring the property affected by the lien into the bankruptcy to be applied to the satisfaction of general creditors. It is not the discharge of the bankrupt, but the adjudication, which avoids the lien under section 67f.

Under our statute it is made unlawful for the garnishee to pay any debt or deliver any effects to the defendant, and he is required to show, under oath, what, if anything, he owes, and what, if any, effects he has of the defendant. The effect of the service is to impound in the garnishee any debt or property owing to or owned by the defendant, and to create in the plaintiff a lien thereon to secure the debt sued upon. This lien is fixed as of the date of the impounding, which is the date of service on the garnishee, where the debt exists or the property is in his hands at that time; and, where the debt is created or the property comes into his hands thereafter, but before he answers to the garnishment, the date of impounding is the date when the debt is created or the property comes into his hands. In the present case the garnishment was served and the garnishee answered more than a year prior to the date the petition in bankruptcy was filed, and was therefore in no way affected by the bankruptcy. And, if the lien was not affected by the bankruptcy or the discharge of the bankrupt, then it must necessarily follow that the lien could be enforced by judgment against the garnishee in like manner as it could have been enforced had there been no bankruptcy. It is true that this lien is dependent upon the liability of the defendant, it is a security for his debts, and presupposes a valid indebtedness. Ordinarily, therefore, a judgment against the garnishee is necessarily dependent upon a judgment against the defendant. The same is true of an attachment lien. But it is not necessary in all cases that a personal judgment be rendered against the defendant. For example, where the defendant is a nonresident of the state, and is not personally served within the state, but is brought in by notice or substituted service, no personal judgment could properly be rendered against him; yet the debt against him can be established for the purpose of subjecting the debt or property in the garnishee's hands, to the satisfaction of plaintiff's claim against defendant. Berry Bros. v. Davis, 77 Tex. 191, 13 S. W. 978, 19 Am. St. Rep. 748, and cases there cited; Goodman v. Henley, 80 Tex. 499, 16 S. W. 432; Shoe Co. v. Mercantile Co. (Tex. Civ. App.) 200 S. W. 250, and cases there cited; 28 C. J. p. 320, and cases cited in note 70. Such a proceeding is one quasi in rem, and satisfaction by the garnishee of the judgment against him, based upon the judgment establishing the debt of defendant to plaintiff, constitutes a defense pro tanto to any subsequent suit brought by the defendant against the garnishee in relation to the debt or property impounded by the garnishment, although no personal judgment was or could be rendered against the defendant. Berry Bros. v. Davis, above, where the nonresident defendant was served by publication. In Goodman v. Henley the service was by statutory notice.

The replevy bond is authorized for the purpose of enabling the defendant to deal with the debt or property in the garnishee's hands unrestricted by the garnishment. He may enforce the payment of such debt or recover possession of his property, if otherwise entitled to do so. The garnishee, on the other hand, is no longer bound by the inhibition against paying the debt or delivering the property to defendant. He cannot longer be held liable for so doing. The bond takes the place of the impounded debt or property, and the defendant and his sureties are liable thereon only to the extent that the debt or property impounded could have been subjected to plaintiff's debt had no bond been given. The statute expressly provides that the defendant "may make any defense which defendant in garnishment could make in such suit." And it necessarily follows that the sureties have the same right, as their liability could not exceed that of their principal. Conversely, the liability of the sureties is not defeated by any acts or circumstances which would not have operated as a discharge of the garnishee in the absence of a replevy bond.

To hold that no judgment could be rendered against the...